It's Not Too Late to Board the Netflix, Inc. (NFLX) Bandwagon

Netflix, Inc. (NFLX) has historically crushed the broader stock market in January

Dec 28, 2016 at 10:33 AM
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With January just around the corner, it's time to consider buying Netflix, Inc. (NASDAQ:NFLX) call options. To put it bluntly, the streaming media stock has been a beast during the first month of the year, looking back a decade. Specifically, NFLX shares have been positive in seven of the last 10 Januaries, with an astounding average gain of 21.1% -- better than any other S&P 500 Index (SPX) stock.

Plus, NFLX has really been heating up lately. Since its post-election bottom at $110.68 on Nov. 14, the stock has burst higher, up nearly 15% at $126.87. In the process, the shares have put themselves within a chip-shot of their $129.29 annual high, and should finish 2016 on a healthy double-digit percentage lead -- currently 11% -- forbidding any unexpected sell-offs through week's end.

Not everyone's a fan, though. Fifteen of 33 analysts consider NFLX a "hold" or worse. And Evercore ISI, which has been waxing optimistic on "FANG" and internet stocks, omitted Netflix from its list of 2017 top picks. If the stock has another January breakout, these skeptical analysts may be forced to upwardly revise their opinions, resulting in tailwinds for the shares.

Similarly, NFLX could continue to benefit from a short-squeeze situation. The stock has risen lately as shorts have been covering, with short interest falling 12.7% in the last two reporting periods. Based on the equity's average daily volume, it would take another week to cover the 26.8 million shares currently shorted, suggesting there's plenty of sideline cash available.

Given the potential for contrarian upside, it may be time to buy NFLX calls. It appears this feeling is shared among plenty of options traders, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 1.66 calls for every put in the past two weeks. Notably, this ratio outranks 93% of all comparable readings from the previous year, hinting at a pronounced appetite for bullish bets over bearish.

Today, in fact, Netflix, Inc. (NASDAQ:NFLX) calls are running at nearly double the usual intraday rate, and are easily outstripping puts. Buy-to-open activity may be transpiring at the weekly 12/30 130-strike call, suggesting at least some traders anticipate the stock will run to annual-high territory before the year is over.

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